Riding on OPR upcyle
? On 6 Jul 2022, BNM raised OPR by another 25bp to 2.25%. Our economist
expects another 25bp hike before end-22 with a total hike of 75bp in 2022.
? We estimate that every 25bp hike in OPR would increase banks’ net profit by
c. 2.1% (ranging from 1.3% for Public Bank to 7.1% for Bank Islam).
? We reiterate our Overweight call on banks as we expect banks’ net interest
margin to expand in 2H22 and 2023 amidst the OPR upcycle.
Another 25bp hike in OPR
During the monetary policy committee (MPC) meeting on 6 Jul 2022, Bank Negara
Malaysia (BNM) raised the overnight policy rate (OPR) by another 25bp to 2.25%, which
was in line with our economist’s expectation. This was the second 25bp hike in OPR YTD
with a total increase of 50bp in OPR. Our economist expects another 25bp hike in OPR
before end-2022. With this, OPR would be lifted by 75bp in 2022 to 2.5% by end-Dec 22.
Benefitting from OPR hike
We expect the OPR hike to be positive for banks as their total floating rate loans are larger
than their total fixed deposits (both of which would be repriced upward during the OPR
hike). We have factored in a total hike of 50bp in 2022F in our earnings forecasts for banks.
Every additional 25bp hike would increase our net profit forecasts for banks by an
estimated 2.1% (for FY24F for HLB, AMMB and Alliance Bank, and FY23F for the rest).
Bank Islam is the biggest beneficiary of the OPR hike
Based on our analysis, the OPR hike would have the largest positive impact on Bank
Islam’s FY23 net profit (7.1% for every 25bp hike) as its floating rate loan ratio of 91% in
FY23F (projected by us) is the highest in the sector. Conversely, the OPR hike would have
the smallest impact on Public Bank’s FY23F net profit (1.3% for every 25bp hike) as its
current and savings account (CASA) ratio of 24.3% in FY23F is among the lowest in the
sector.
Potentially negative for loan growth and asset quality
The interest rate hikes could be negative for banks’ loan growth and asset quality as these
spell higher borrowing costs and increased monthly loan repayment. However, we have
factored in a deterioration for the above as reflected in (1) our projected loan growth of 4-
5% for 2022 vs. 5% yoy at end-May 22, and (2) an increase in gross impaired loan ratio
from 1.64% at end-May 22 to 1.8-2.0% at end-Dec 22.
Reiterate Overweight on banks
The OPR upcycle and the expected decline in 2022 loan loss provisioning are the potential
re-rating catalysts for our Overweight call on banks. For OPR hikes, we believe that their
positive impact on banks’ net interest margins would outweigh the potential negative impact
on loan growth and asset quality. Our sector top picks are RHB Bank, Hong Leong Bank
and Public Bank.